Minnesota Life Insurance License Practice Exam

Which of the following statements is true regarding insurable interest in life insurance contracts?

1. Only financial interests qualify for insurable interest

2. Friends can have insurable interest over each other

3. Insurable interest is not necessary when purchasing life insurance

4. Close relatives have insurable interest based on love and affection

The correct answer is: Close relatives have insurable interest based on love and affection

The statement that close relatives have insurable interest based on love and affection is true regarding insurable interest in life insurance contracts. Insurable interest is a fundamental requirement in insurance law, ensuring that the policyholder has a legitimate interest in the continued life and well-being of the insured individual. Close relatives—such as parents, siblings, and children—naturally have a strong emotional connection that translates into an insurable interest, as the loss of a loved one can have profound financial and emotional implications. Consequently, insurance policies can be purchased on the lives of these individuals since their financial, emotional, or familial ties signify that the policyholder stands to suffer a loss should the insured pass away. While certain interests may also be financial and qualify for insurable interest, the love and affection principle specifically underscores the personal stakes involved in relationships among family members. Therefore, this understanding helps recognize why close familial relationships satisfy the criteria for insurable interest in life insurance contracts.